Audit assertion supported by debtors confirmation letter.

One of audit procedure which auditor can perform to obtain audit evidence is external confirmation. to perform external confirmation the auditor send letter to knowledgeable independent third party so that he can confirm balances with that third party. Obtaining debtor’s confirmation letter is one example of external confirmation.

Auditor perform external confirmation to obtain audit evidence which support different audit assertions. Some of these assertion are:

Existence of debtors: debtor’s confirmation letter provides evidence of existence of the debtors when the reply is returned from that debtor direct to the auditor.
Cut off of sales: the letter provide evidence on cut off because sales or cash receipt record in the incorrect accounting period will have to be reconciled to the balance provided by auditor.
However the letter does not provide evidence of completeness of the debtor balance because debtors may not query balances which are understated
Also the letter does not provide evidence of the valuation of the debtor balance because the debtor cannot be expected to list all outstanding balances and confirmation of the debt does not mean it will be paid.
To sum up, auditor use debtor’s confirmation letter to obtain audit evidence with regard to existence of debtors and cut off of sales. Debtors confirmation letter is not used to obtain audit evidence on completeness or valuation of debtors.

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